Merry Correction Day
Comments
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Bonds covers a wide range of very different investments. There are also others - infrastructure and property income, cash, non tradable loans, gold and other similar non productive assets, hedge and private equity funds. Also there is a wide range of equity investments, not all of which are always highly correlated.
For the purposes of the SWR calculation papers that many take as their bible, bonds were very clearly defined. Taking them off piste makes for a very different set of scenarios.0 -
That would depend on the formula you follow. The one I am looking at you take bonds unless equities out perform by a certain percentage
The hedge funds spent millions getting rocket scientists to create complex trading algoritmns. The one thing that they overlooked. Is that a roulette table also has a green zero. Not just a question of black or red. Someone somewhere will get the formula wrong in their hunt for the holy grail.0 -
Thrugelmir wrote: »The hedge funds spent millions getting rocket scientists to create complex trading algoritmns. The one thing that they overlooked. Is that a roulette table also has a green zero. Not just a question of black or red. Someone somewhere will get the formula wrong in their hunt for the holy grail.
Nothing is perfect but hopefully the chances of a better retirement will be higher than using a fixed withdrawal rate or just doing by guesswork. Until a better idea comes out its the one I am aiming for0 -
And a happy volatile new year to one and all.0
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..well so far my portfolio is completely flat for the year, so looks as though the correction is over........
Happy New Year all!"For every complicated problem, there is always a simple, wrong answer"0 -
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7.1% down for the year, interestingly my fund which had underperformed its comparison group when stocks were rising has outperformed since they have been falling leaving it bang on for the last 3 years....I think....0
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Ideally you'll have read Drawdown: safe withdrawal rates and be using the Guyton-Klinger rules to start at 5% rather than 3% and adjust subsequently based on actual performance.Let's say when you start withdrawing, a bull run continues for another 5 years or so. Just wondering if there any downside to being too cautious in good years and sticking to say 3% withdrawals, in that when the crash comes you will have a bigger percentage loss and then won't be able to withdraw as much from the investments or have as much cash available to draw on?
The downside to starting too low is either running out of life with far more money than necessary or retiring later than you could.
If you've withdrawn less during good years you will have built up a reseve in the investments so that the amount you draw fom them for a crash of any particular size is a lower percentage than it would otherwise have been. Which means less effect on future success.
What Guyton-Klinger does in effect is draw from cash first then bonds and finally equities. In years when equities do very well some money is moved to cash for later drawing. What this does is greatly protect you from market drops in the early years.
5% is the G-K 90% success rate for the UK assuming you are paying 1.5% in charges with the same one third of charges reduction in safe withdrawal rate that applies to level inflation adjuated income. It is equivalent to 4% rule minus 0.3% UK adjustment for that minus the same 0.5% reduction for presumed 1.5% in charges, except that is 100% sucess rate not 90%. In the UK 90% success rate is roughly equivalent to saying that you will make further adjustments if the UK is a major player in another world war because that is what set the worst UK cases.
You are allowed to recalculate your safe withdrawal rate whenever you like. After a long run of success earely in retirement would be one good time to consider it so you don't continue with the pessimistic bad case early years assumption. Another time to use higher rates would be retiring just after a major crash because that cuts the potential for further early crashes. A time to be more cautious and stick closer to the lower end is retiring during a long bull market with a drop to follow that hasn't happened yet.0 -
Thanks jamesd, that's interesting but not sure I understand it all looking at this page in particular:Ideally you'll have read Drawdown: safe withdrawal rates and be using the Guyton-Klinger rules to start at 5% rather than 3% and adjust subsequently based on actual performance.
https://www.kitces.com/blog/understanding-sequence-of-return-risk-safe-withdrawal-rates-bear-market-crashes-and-bad-decades/
It says that one or two years of really bad returns early on should not affect SWRs. In the example shown it says even if in the first year there is a loss of 42% there could still be a SWR of 5.34%. I would have thought safer not to draw anything in a loss year, especially a crash year? It also says if in the first year there was a positive return of 35%-55% the SWR could still be between 5% and 6% - so not much difference from a bad first year.
It goes on to say that bad decades are the real problem rather than a couple of bad years. I understand that but it says later in the page that even compounded real returns (taking inflation into account) of below about 3% over a decade are still in the 4% to 5% SWR range. That seems a really high SWR for a low growth, so I don't understand how that is calculated?0
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